...having examined the activities of the such entities and on the basis of the experience gained, the Central Government is of the view that such entities which were granted exemption under section 27 of the said Act, thereby facilitating unregulated forward trading on their platform, have failed to serve the purpose for which they were created, the notification said.
It added that due to various risks associated with trading in such unregulated entities in areas of monitoring and surveillance, risk management and settlement systems, corporate governance, and equity structure, forward trading in such unregulated entities is not in public interest.
In June 2007, the consumer affairs ministry had exempted all forward contracts of one-day duration from provisions of the FCRA, under section 27 of the Act, with an intention to increase liquidity on the exchange, hoping that it would eventually help farmers get higher prices for their produce.
The exemption was subject to several conditions; one of which was that no short sale by members of the exchange would be allowed. The National Spot Exchange had repeatedly violated that condition, leading to the 56-bln-rupee payment default scam.
As fallout of the National Spot scam, turnover in the regulated futures market has slumped nearly 70% in the last 15 months.
In 2013, the Forward Markets Commission had recommended that the consumer affairs ministry withdraw the exemption.